Lao PDR Public Finance Management (PFM) Modernization Project (P167534) Technical Note: Public Finance Management Modernization Program (EU-WB TF); Change Management Mission, (23 July – 3 August 2018) 24 September 2018 Table of Contents List of Acronyms ............................................................................................................................................ 3 I. Introduction .......................................................................................................................................... 4 II. Change Management in Support of FMIS Implementation.................................................................. 4 III. Change Management Workshops for Staff and High-Level Staff ......................................................... 5 Staff Workshop............................................................................................................................... 5 High-level Staff Workshop.............................................................................................................. 9 IV. Follow-Up............................................................................................................................................ 15 V. Recommendations and Next Steps..................................................................................................... 16 Annex .......................................................................................................................................................... 17 Annex 1: List of Officials Met .............................................................................................................. 17 Annex 2: Proposed Activities and Timelines ....................................................................................... 18 Annex 3: Review on the Project Management Structure of Financial Management Information System (FMIS) Implementation of the Lao PDR for Step 1 of PFM Reform Phase II (2018-2020)...... 20 This report was prepared by Erwin Ariadharma (Senior Public-Sector Management Specialist, GGOEA) and Paul Tambunan (Change Management consultant). Fanny Weiner, Senior Public-Sector Management Specialist and Saysanith Vongviengkham, Public Sector Specialist, are the task team leaders. List of Acronyms AD Accounting Department CIA Change Impact Analysis CM Change Management CMC Change Management & Communication COTS Commercial Off-The-Shelf CRA Change Readiness Assessment DG Director General DGT Director General Treasury DGB Director General Budget EFA Economic Finance Academy EFI Economics and Finance Institute EU European Union FMIS Financial-Management Information System FMWG FMIS Project Management Working Group FPLD Fiscal Policy and Law Department GDB General Department of Budget GDNT General Department of National Treasury GFIS Government Financial Information System ICT Information and Communication Technology IFID Institute for Financial Information Development IFMIS Integrated Financial Management Information System KPI Key Performance Indicator MEF Ministry of Economy and Finance MoF Ministry of Finance NTD National Treasury Department PD Personnel Department PFM Public Finance Management PIU Project Implementation Unit SBD State Budget Department SOP Standard Operating Procedure SPAN State Budget and Treasury System or Sistem Perbendaharaan dan Anggaran Negara (in Indonesia Language) TA Technical Assistance TP Provincial Treasury TMO Training Management Office TNA Training Needs Assessment WBG World Bank Group 3 I. Introduction 1. The World Bank (WB) and European Union (EU) have set up the WB-EU PFM Single Donor Trust Fund to support a work program agreed with the Ministry of Finance of Lao PDR (MoF), with the objective of strengthening Public Financial Management (PFM) through provision of technical, analytical and advisory inputs that contribute to establishing the key guiding principles and policies for sound public financial management. 2. In preparation of the Public Finance Management (PFM) Modernization Project (P167534) and in support of the implementation of the Public Finance Development Strategy 2025 and Vision 2030, a change management program was initiated. This mission targeted senior officials/high-level staff and technical staff from key departments, central to the upcoming implementation of the Financial Management Information System (FMIS): Fiscal Policy and Law Department (FPLD), National Treasury Department (NTD), State Budget Department (SBD), Institute for Financial Information Development (IFID), Personnel Department (PD), Accounting Department (AD) and Economic-Finance Institute (EFI). 3. Several change management workshops were successfully delivered during the mission (July 23 – August 3) and to this effect, the mission team would like to express sincere gratitude to Dr. Bounleua Sinxayvoravong, the Director General of FPLD and the Secretary to the MoF Steering Committee, for his leadership and guidance. The team would also like to thank MoF senior officials and staff for their strong commitment, and their excellent cooperation and support (the complete list of senior officials/high-level staff met during the mission is in Annex 1). 4. The purpose of this Technical Note is, to report on (1) the implementation of the change management workshops for high-level staff and technical staff; (2) the feedback after the workshop implementation; (3) the current understanding of key stakeholders on change management and its purposes/functions; and (4) the proposed recommendations regarding the governance structure to support the upcoming FMIS implementation. 5. The Technical Note focuses on the roles and functions of change management in support of FMIS development and implementation, and factors critical for a successful FMIS project implementation. On the basis of two examples of FMIS implementation from Indonesia and Cambodia, lessons learnt and critical aspects of the people side (which change management is focusing on) were discussed. 6. Further, the Technical Note recommends next steps for change management activities for the next 6 months to one year, to (1) obtain a better understanding and get a comprehensive picture about the change readiness of Lao PDR in terms of staff and organization; and (2) improve the capacity and capability of key government counterparts that will help and assist the people in the organization to make their transition to the more automated environment. II. Change Management in Support of FMIS Implementation 7. A meeting with key stakeholders in the FMIS implementation- FPLD, SBD, NTD, Personnel Department, IFID and Economic and Finance Institute (EFI) - revealed (1) a certain degree of readiness to 4 the FMIS project; and (2) a basic understanding on how FMIS can help improve the accountability and transparency of financial transactions. It was also recommended that (3) a solid organizational structure to support the FMIS implementation; and (4) full-time dedicated teams need to be in place (based on the experiences from FMIS projects in Indonesia and Cambodia). Currently, the MoF has a Steering Committee for the overall PFM Reform in which FMIS is one of the key agendas. Key Vice Ministers are supporting the technical functions. To ensure buy-in from all key stakeholders within the organization, it was concurred that FMIS is not merely an IT project but rather a cross-cutting project that requires support from all departments within the MoF. 8. To increase the awareness and benefits of change management, a series of Change Management (CM) workshops were conducted to provide MoF counterparts with a better understanding on the critical roles of CM and how CM can improve the success probability of the project. III. Change Management Workshops for Staff and High-Level Staff 9. During the mission two change management workshops were held. The first workshop (1.5 days) targeted staff from different departments while the second workshop (0.5 days) was for high-level staff and senior officials. Both workshops covered similar topics but took the respective target groups’ specific topics and concerns into consideration. Staff Workshop 10. The CM workshop was chaired by the Director General (DG) of the Personnel Department and attended by around 30 staff from the six departments mentioned before. The workshop itself covered the following key topics alongside the key messages on the first day: Introduction to CM in Information and Communication Technology (ICT) projects Fact#1: The failure of such projects is usually not caused by wrong solutions: 70% of cases stated that the solution is right, but the failure happened due to poor implementation and lack of focus on CM (Gartner); Fact #2: 92% of all challenges in transformation projects are caused by people, of which leadership, organizational & cultural issues and user issues are accountable for 42%, 27% and 23% respectively; Fact #3: Five out of the top ten business transformation showstoppers are “people� and “organizational� issues: (1) Resistance to Change (82%); (2) Inadequate Sponsorship (72%); (3) Unrealistic Expectations (65%); (4) Poor Project Management (54%) and (5) Case for Change Not Compelling (46%) 5 Table 1: Myths and Realities of Change Management No Myths Realities 1 CM is just trainings and Not only training and communications communications but also other techniques to help overcome resistances, adjust to changes and accelerate behavior changes 2 Focus on the hard side of the Both normal and irrational reactions project and not to worry from people when confronted with about the soft one change need to be managed by the soft side to obtain emotional acceptance and adjustment 3 CM is handled by HR CM is complex and requires people Department throughout the organization to take responsibility 4 CM is targeted at only the Not only the end-users but also others end-users within and outside organization impacted by the changes 5 No time for CM Not doing CM will increase the risk of project failure and inability to achieve expected benefits General introduction to CM itself 11. CM is the process, tools and techniques to manage the people side of change to successfully manage the implementation of transformation/change projects CM focuses on helping invididuals within an organization to make their transition. 12. In a typical transformation project CM usually targets the following aspects: - Strategy: Strategy and Plan for CM; - Structure: Structures, roles and responsibilities in the new work model/system - Process: Improved business processes to suit the new system; - People: role-based and hands-on trainings to equip end-users to effectively work with the new system; and - Technology: new system development and interfaces Change commitment curve and valley of despair; 13. One of the critical goals of CM is to create a sense of urgency and continuously improve the commitment and buy-in of the stakeholders over the course of the project through the following stages: (1) Contact; (2) Awareness; (3) Understanding; (4) Positive Perception; (5) Adoption; and (6) Embedded and Sustained 6 Figure 2: Change Commitment Curve 14. Valley of Despair is a situation where the overall performance of an organization is decreasing and most of the works are disrupted due to the process of change. The role of CM is to help the organization manage its transition, especially the affected staff who does most of the legworks with the new system. CM helps the staff to make their transition and feel the benefits of the new system. Furthermore, CM helps to shorten the “valley of despair� period. Figure 1: "Valley of Despair" Key success factors in the context of FMIS implementation: 15. Powerful Business Case: If people do not understand why the change matters, they will not support the change and on the contrary, if people can see change in real context, rather than just as ideas, they will embrace it faster. Therefore, a powerful and strong Business Case is needed to create the need for change 16. Vision Clarity: Clarity of Vision defines new behaviors required in the future and creates a common understanding on where to go and/or excitement for the changes ahead. Without clarity of vision, people come up with their own ideas of what is important 7 17. Change Leadership and Accountability: An organization needs the leaders to explain the reason for change, to create a sense of urgency and to lead the organization towards change vision. Also, it needs leaders that can strengthen the new or desired state through the organization culture 18. Stakeholder Commitment: Different stakeholders can perceive the same project in different ways and their concerns, interests and objectives might conflict. The project is likely to be supported if all stakeholders are well informed, involved and engaged 19. Increased Change Capability: Change capability deals with effective change leadership and team skills to overcome resistances. If the change agent/team, someone who promotes and enables change to happen within any group or organization, do not have the necessary skills to undertake the project then the likelihood of success diminishes. Increased change capability is also necessary to make change stick 20. Strong Project Management: Transformation projects are complex, costly, time consuming and involve many key stakeholders; therefore, they require an integrator mechanism for coordination and communication to ensure accountability and transparency. Strong project management will provide solid working mechanisms and help manage and integrate technology, process, people and change management in effective and efficient ways 21. Change Specific Communication: Most people fear the unknown and they want to be kept in the loop and informed of any internal development. They are the ones that will do most of the works, therefore, they must understand the objectives, the reasons, how the project will be implemented and what is expected of them. Change specific communication is critical to communicate the change strategy, plan, progress and technicalities to the key stakeholders; and 22. Aligned Performance and Culture: A transformation project will bring cultural changes and these cultural changes need to be aligned with a proper performance management system to promote new behaviors. 23. The second day of the workshop covered sharing experiences from Indonesia’s FMIS implementation, in particular: (1) what worked well and what not, including the results of the Change Readiness Assessment (CRA); and (2) video clips, showing the journey of SPAN (State Budget and Treasury System or Sistem Perbendaharaan dan Anggaran Negara) IFMIS of Indonesia. What worked well in SPAN IFMIS? The MoF of Indonesia ensured the commitment of key leaders through formal ways (e.g., becoming members of the Steering Committee) and the CM Team facilitated the leaders’ effort to show their commitment to change (e.g., leaders’ communication). What did not work well? Change leaders did not always put the SPAN project as a top priority therefore, they needed to be constantly reminded. Also, the CM Team did not have strong access to the change leaders to provide the leaders with more insights on impacts of change to people. 8 24. Questions that have been asked during the 1.5-day workshop and the associated answers are as follows: What if people cannot keep up with the new system? Would they be laid off? What happened in this regard in Indonesia and Cambodia? Both in Indonesia and in Cambodia, a comprehensive set of technical trainings (hands-on training and role-based training) were carried out to ensure that all end-users felt confident and comfortable to use the new system. Even though this slowed down the whole processes and created an efficiency issues, no one was laid off as decided by the government. Their job value increased due to the acquisition of new competencies which made them confident in working with the new system. In the case of Indonesia, some end users (who were not needed in the new formation) were transferred to a newly established unit in the regional treasury office to assume the new roles, duties and responsibilities that are still related to the familiarization of the new system with the sub-national government end users How to minimize resistance from people? What is the best approach to do it? CM offers a set of tools and techniques to minimize resistance in a systematic and structured way. For example, CM helps change leaders to formulate and define a change vision that is compelling, credible and creates a common understanding and clarity of the road ahead as well as excitement and enthusiasm. The approach that best suits the situation will largely depend on the political economy analysis of the organization alongside the power hierarchy and structure, as well as on the outcome of the change readiness assessment How long did it take to complete the FMIS project in Indonesia and in Cambodia? Why did it take a different amount of time to complete than anticipated? Due to procurement issues the implementation of the FMIS project in Indonesia took much longer than in Cambodia. It took around 10 years to complete (until roll-out) while FMIS implementation in Cambodia took around half the time. Besides procurement issues, Indonesia SPAN IFMIS allowed for some customizations (15-20%) and did not take full advantage of the best practices offered by the COTS which resulted in delays while Cambodia chose to reap all the benefits of a COTS (no customization at all). High-level Staff Workshop 25. The CM workshop for high-level staff chaired by the DG of the Fiscal Policy and Law Department. The DG stressed the importance of capacity development of all teams involved in order to fulfill the expectation of the top management to roll out the FMIS by 2021. For that to happen, it is recommended that the MoF sets up a team working full-time with the consultants and the WB Team. Further assistance and support in the form of Technical Assistance (TA) from WB is also critical to the success of the FMIS project. The workshop covered the following topics: (1) Introduction to CM; (2) Change Commitment Curve and Valley of Despair; and (3) Key Success Factors of CM regarding the role of leaders. The following paragraph gives examples from FMIS implementation in Indonesia and Cambodia: Leadership Indonesia’s SPAN FMIS Case: - SPAN Project Team used the “Change Flows Downhill� principle which emphasizes the role of leaders as sponsors, drivers and sustainers of the change initiative; 9 - The Stakeholder Analysis and Change Readiness Assessment uncovered the limited “visibility� of commitment and support of the leaders to SPAN implementation; - A SPAN Implementation Committee was established to ensure the engagement of all relevant leaders in Head Office and Regional Offices. - Leaders were provided with schedules of communication activities and training on the role of leaders in organizational change. Specific communication activities included the creation of a SPAN Message Video from the Minister of Finance, regular “power workshops�, and “leadership roadshows� with the leaders of the technical co-ordination teams - One issue that hampered the success of these strategies were the regular changes of top leadership of the ministry. Cambodia’s FMIS case: - FMIS as part of PFM Reform Program had formal support from the highest levels of government as well as from top leaders of Ministry of Economy and Finance (MEF). However, initially, the FMIS program was not understood to be a transformational change project but rather a software upgrade; - A Stakeholder Analysis revealed the depth of resistance of middle management and different levels of support among different Department Directors and Deputies. This included issues of how workloads should be changed, preservation of power and protection of staffing base; - The IT Department, as the FMIS project implementer, had a relatively low-status within the structure of the MEF. This created a problem in gaining access to the key stakeholders’ leadership to discuss pertinent issues; and - Significant changes in attitudes of higher level leaders were noted as the 2017 local elections and 2018 national elections drew near. Top leadership increased pressure on middle managers to deliver change, which created greater momentum. Project Design and Governance Indonesia’s SPAN IFMIS case: - A new Echelon II unit was established in DG Treasury (DGT) in 2008 primarily to manage all activities related to the implementation of SPAN. Unfortunately, this was not the same for other DG units; - The SPAN project leadership was comprised of the Project Sponsor (Minister of Finance), the Project Owners (Secretary-General, Director-General of Treasury, Director-General of Budget; and Inspector-General), the Project Directors (special staff from the Ministry of Finance, DGT, DG Budget (DGB), and IT Division), and the Project Support team; - The Technical Coordination team was established in 2010, which oversaw the work of several business process, IT and Change Management & Communication workstreams; - The Change Management & Communication (CMC) Workstream of SPAN IFMIS implementation project was comprised of approximately 30 persons, divided into four sub-workstreams: (1) Change Management, (2) Communication, (3) Organization and Human Resource, and (4) Training; and - The “SPAN Ambassadors� change agent network was established. 10 Cambodia’s FMIS case: - The FMIS Project was under the ultimate authority of the Minister. Day-to-day governance was overseen by the FMIS Project Management Working Group (FMWG). Management of the project was under the Director of the IT Department, which falls under the Secretary-General; - Membership of FMWG was assigned in addition to members’ other responsibilities in their respective general departments and departments; - Hierarchically the CM team was at the same level of other general departments and departments, making it a team of peers rather than a group operating under the direction of more senior leadership; - It proved difficult to maintain interest and attendance from FMWG members. By the time the system went live, the FMWG was not able to overcome the perception of FMIS as an IT project; and - A ministerial decree specified the names of the members of FMWG and stipulated that members would receive salary supplements. However, the level of salary supplement was not at the level they had expected, and their workloads were already burdensome, leading a few members to attempt to resign from FMWG. Organizational Alignment Indonesia’s SPAN IFMIS case: - The organizational alignment and human resources transition plan was not done early enough. Uncertainty among staff about the impact of SPAN on their job security resulted in some resistance to the project among staff; - The CMC Team performed the assessment of the impact of SPAN implementation, which included span of control, working relationships, governance, workloads, and competency requirements in work units within the Ministry, as well as reviewing the relevant legal frameworks and regulations; and - The CMC Team proposed new structures, roles, responsibilities and Key Performance Indicators (KPIs) to enforce the change, including adjusting relocation and competency development needs of employees. It also proposed the embedding of new IT and business processes into human resources activities, and promoted the alignment of SPAN with MoF organizational values Cambodia FMIS case: - FMIS could facilitate enormous efficiencies in the work of the MEF if it replaces the manual processes and if the organizational structures and job descriptions are appropriately realigned; - Managers within the MEF did not initially anticipate the full scope of the change. Many Department Heads came to realize in a later stage that FMIS represented a systemic change that transformed accountability, authority and levels of transparency; - Up to the launch of the system, the full extent of the change had still not been grasped, and only few organizational alignments had been put in place. As a result, FMIS was being used as a reporting system alongside existing manual procedure, an approach which increased workload rather than reducing it; and - A study tour of eight provincial treasuries in 2017, showed that the FMIS system was actively in use to support daily financial transaction, and was largely positively viewed by Provincial Treasurers 11 Engagement and Communication with Stakeholders Indonesia’s SPAN IFMIS case: - The key stakeholders were MoF employees within DGT, DGB, IT Division and other related units (approximately 10,000 people) and other government ministries and agencies (approximately 96,000 people); - The CM Team used Stakeholder Analysis to determine the level of impact, influence, and support of stakeholders; - A Change Readiness Assessments (CRA) was periodically conducted to gain understanding of stakeholders’ awareness of the objectives of SPAN implementation, the level of commitment, perceptions of critical success factors of implementation, willingness and potential constraints to adapt to the new environment; and - Central to the engagement of employees was the problem of communication. The SPAN “Change Agents� program was specifically developed as a communication channel for SPAN. It was designed to serve as the bridge of communication and coordination between SPAN project team and the stakeholders. Cambodia’s FMIS case: - A Stakeholder analysis was first conducted in September 2014 and excluded the key beneficiaries of the system, namely the Cambodian public, and private sector suppliers who have financial transactions with the Government; - An update to the stakeholder analysis was conducted in September 2015 and concluded that key users and influencers of the project were generally aware of FMIS, but not proactively engaged. At provincial level, there were also deficits in awareness of the existence of the project. The findings of a CRA, conducted across the provincial treasuries, conveyed a similar picture; - In general, the outcomes of the CRA in the Provincial Treasuries (PT) were better than those in General Department of National Treasury (GDNT). PT was more committed to embrace the FMIS than GDNT in the headquarters; and - Interestingly, once the system was rolled out to the PTs, the enthusiasm for FMIS there increased further due to the obvious benefits. With the FMIS system, 2-3-days work was reduced to a few minutes. Workforce Alignment Indonesia’s SPAN IFMIS case: - Central to the issue of workforce enablement was training. A number of guiding principles were used in the development of a standardized training approach, including an emphasis on adult learning modes, role-based training, collaborative learning among co-workers, combining classroom and hands-on approaches, and “Train the Trainers� programs; - SPAN Training Management Office (TMO) performed a Training Needs Assessment (TNA) to identify the specific knowledge and skill requirements of each stakeholder group. Subsequently a training plan, which included specific training curricula and courses, target audiences, duration and method of training, standards for conducting training, and feedback and improvement mechanisms, was developed; and 12 - A further issue in workforce enablement was the incentivization of employees. Monetary incentives were considered to be the most effective. Incentives in the form of additional allowances were rolled out to all staff working in DGT and DGB, starting with those who worked in treasury offices deemed “excellent�. Cambodia’s FMIS case: - Workforce enablement focused on the attitudes of FMIS Users. The focus has been on training and technical issues, particularly in the context of the PTs where experience of using online tools was very low. The CRA indicated the need for further training, information and awareness sessions; - However, as previously noted, once the system went live across Cambodia’s provinces, it became evident that there was more interest in the system at this level than at the center, and change management plans designed to leverage this finding were established; and - This experience suggests that conducting a political economy analysis at different levels of government could have helped in identifying differences in the acceptance regarding different types of staff at different locations. Make the Change Stick Indonesia’s SPAN IFMIS case: - To ensure that the IFMIS SPAN implementation was sustainable and able to realize its benefits, MoF performed the following activities: - Standard Operation Procedures (SOPs): MoF deployed new Standard Operating Procedures for the Treasury Offices which incorporated IFMIS SPAN in their activities; - Help Desk: The IT Division deployed a dedicated help desk to assist IFMIS SPAN Users in system troubleshooting; - Online Monitoring: MoF developed a IFMIS SPAN Online Monitoring system (OM SPAN) which is an IT dashboard application using transaction data from IFMIS SPAN database to show the progress of many elements of state budget disbursement; and - Benefit Realization: MoF measured the satisfaction of stakeholders of IFMIS SPAN, as part of the effort to measure the benefits of IFMIS SPAN. MoF also communicated the achievements of IFMIS SPAN benefits to all relevant stakeholders using various communication media Cambodia’s FMIS case: - FMIS implementation at the MEF and PT have been completed. Benefits identified include reduced workloads and greater ease of access to financial information, this has reportedly generated significantly greater enthusiasm for the reform within the General Department of Budget (GDB) since the system went live; - The Government, moving into an uncertain electoral period in 2017/18, had a strong political interest in improved accounting and better public. The government is currently extending FMIS to other relevant government agencies and plans to complete this by 2020; and - FMIS implementation also faced some drawbacks due to delays in implementation of its CM strategy. MEF had begun to issue SOPs to support FMIS. However, the SOPs still incorporated lengthy steps and manual procedures in a context where middle managers appeared still not to 13 be convinced by the benefits of the reform and were unwilling to commit to more substantial restructuring. 26. Two video clips on FMIS implementation in Indonesia and in Cambodia were presented to provide insights and to build confidence that a similar undertaking can be implemented successfully in Lao PDR. Key questions: Based on the past experiences (Indonesia and Cambodia), what is the proper governance/project structure to support FMIS implementation? The governance structure for FMIS projects usually consists of at least three major parts: (1) Project Sponsors, normally in the form of a Steering Committee led by the Minister, with a main task of providing strategic direction and guidance for the project. The members of the Committee are normally high- ranking officials below the Minister (Vice Ministers or Director Generals); (2) Project Owners, normally consist of Director Generals whose directorates own the entire or most of business processes that will be automated or directly affected. The Project Owners are normally let by the Directorate General that his/her business processes will take the major part of the automatization. The main task of the project owners is to provide operational guidance, solution and access to resources as well as to ensure that the FMIS project will meet its objectives and targets; (3) The Project Executor, normally consist of execution teams whose members are from each directorate/department affected. The major task of the Project Executor is to lead, implement and maintain the FMIS project in day-to-day operations. In practice, the Project Executor is normally supported by a secretariat called Project Implementation Unit (PIU). Given the tight schedule, what would be the best approach to implement FMIS in Lao to meet the deadline set out? There is no a short cut whatsoever to a transformation project like FMIS. The best approach is to ensure that (1) all key stakeholders from the top to the lowest level are committed to the project and play their expected roles, duties and responsibilities; (2) no medium nor high level of customization is allowed on the FMIS as it will add complexities causing more delays in implementation; (3) efficient Project Management and CM is well in place before, during and after the FMIS project; and (4) required resources and dedicated staff to work for the project in a full-time basis are available at any time How to reduce staff’s current workload to support the FMIS implementation, make staff feel comfortable and confident to embrace the new system and support the transition from using the current Government Financial Information System (GFIS) to FMIS? Workload was not a problem in Indonesia SPAN IFMIS case and, neither in in the FMIS Cambodia case it seems problematic. However, it might be different in Lao PDR as the resources, especially manpower (staff) are limited. It appeared that the government needs to either (1) modify and adjust the current jobs of the current staff to meet the objective for the FMIS project implementation or (2) add more resources (hiring well educated new graduates or experienced persons) subject to careful analysis and calculation on the exact numbers of staff that are needed. What opportunities or impacts can FMIS create for its future development? Based on the Indonesia’s case, FMIS implementation and roll-out so far has (1) improved productivity, efficiency and accountability as well as minimized corruption and collusion; (2) improved satisfaction of 14 users from central line ministries and agencies as well as sub-national governments on budget executions; (3) improved staff’s motivation and confidence in acquiring new knowledge and skills; even developing new features and functionalities of the FMIS, like OM SPAN; and (4) led to more initiatives in integrating SPAN IFMIS with other PFM Reform initiatives, like revenue and payroll. IV. Follow-Up 27. Follow-up meetings and discussions were carried out with the FPLD, National Treasury Department, Budget Department, Economics & Finance Institute and Personnel Department to obtain their input and feedback on issues discussed during the workshop. This feedback is used to gain a better understanding of where the MoF is currently stands in terms of readiness and how much effort is needed to reach the necessary level of “Awareness� and “Understanding� in the Commitment Curve (presented during the workshop). 28. With the FPLD, the discussion centered around (1) the legislation or law that will support the implementation of the PFM Reform Action Plan 2020 (e.g. procurement law, public debt law, tax law and custom law) and its future integration with other functions like revenue and expenditure; (2) the roles of each Vice Minister in providing leadership to support the action plan: and (3) the proposed institutional arrangement or governance structure. Annex III provides a deeper analysis on the structure. With the EFI, the discussions covered the following key aspects: - Trainings and workshops for all staff impacted by the FMIS implementation; - Communication for change; - Benefits that FMIS can bring about for the organization and country in terms of better budgetary processes and expenditures as well as higher transparency and accountability; - Benefits that FMIS can bring about for individuals like lessening the current burdens/workloads; - Commitment of all people within the MoF to support the FMIS from the top until the lowest level; - Proposed communication strategy to gain support and increase the buy-in from all key stakeholders. Taking full advantage of leaflets/ brochures and social media like Facebook and WhatsApp as well as outdoor events like social gatherings and soccer games; - Incentives for those involved in the project development and implementation (monetary and non-monetary); and - Business process simplifications to reap the expected benefits and make the change stick With the National Treasury Department, the discussions covered the following topics: - The existing readiness of the department to commence and embrace the FMIS implementation; - Provisions for incentives, even though incentives (according to the department) are not mandatory; - Critical factors of success for FMIS i) Technical Assistance from WBG Team or consultants to provide necessary guidance; and ii) a dedicated team to work on a full-time basis on the FMIS implementation; 15 - Current level of computer literacy amongst staff both in the central level and in the sub-national level; - Business process simplifications which become a pre-requisite for FMIS; and - Benefits of the FMIS for individuals, unit and organization V. Recommendations and Next Steps 29. Following these first workshops, which are believed to have raised the level of awareness, several major CM activities will be initiated. It is essential that CM activities are carried out early in advance to the FMIS project implementation, to (1) better anticipate challenges; (2) better understand behavior and emotional reactions as well as aspirations of the key stakeholders; and (3) increase the overall probability of success. The following next activities are suggested to be carried out soon, (for more information, refer to Annex 2): - Conduct a preliminary Change Impact Analysis (CIA) to better understand the overall impact of the FMIS and to identify impacted stakeholders (by end of October 2018); - Conduct stakeholder analysis to better understand the commitment and interests of the primary and secondary stakeholders of the FMIS project (by end of October 2018); - Prepare change strategy and plan based on the CIA and stakeholder analysis first draft by end of October 2018; and - Set up a special CM team within the Ministry and equip the team with necessary skills in CM (Q2 2019) 16 Annex Annex 1: List of Officials Met Name Title Department Ministry/Agency Dr. Bounleua Sinxayvoravong Director General Fiscal Policy and Law MoF Mr. Khanthaly Vongkaysone Director General IFID MoF Director General National Treasury MoF Mr. Khounnhon Khammany Director General Personnel MoF Mr. Phoukhaokham Vannavongxay Director General EFI MoF Mr. Soulivath Deputy Director Budget MoF Souvannachoumkham General Ms. Sifong Oumavong Division Director Fiscal Policy and Law MoF Mr. Bryan Fornari Head of Delegation of the EU EU Cooperation to Lao PDR 17 Annex 2: Proposed Activities and Timelines No Proposed Major Activities Major Deliverables Methods Timeline and Duration for Remarks Mission 1 Identifying and understanding Brief on Preliminary Change • Observation • Aug – Oct 2018 • Mission for Activity preliminary impact of FMIS Impact Analysis • Interview #1, #2 and #3 can implementation for the MoF • Desk study be done in parallel 2 Identifying and analyzing key Stakeholder Mapping and • Interview • Aug – Oct 2018: start • Duration of the stakeholders (primary and Analysis (living document – • Desk Study of conducting the first Mission is 2-3 weeks secondary stakeholders) in the needs to be updated mapping and analysis • The remaining MoF (both in HQ and in sub- regularly) works can be done national level) remotely for the 3 Developing Change Strategy and Draft Change Strategy and • Observation • Aug – Oct 2018: start first draft (2-3 Plan based on the outcomes of Plan (living document – needs • Interview of developing the weeks) activity #1 and #2. to be updated regularly) • Desk study strategy and plan 4 Developing a Project Charter. This • Project charter document • Desk study • Aug – Oct 2018 in • This can be done project will provide a guideline on (living document – when • Discussion parallel with remotely for the key FMIS project management major changes take place) stakeholder mapping first draft (2-3 such as project management • Discussion and and analysis weeks) structure, roles and socialization of project responsibilities, competency, charter to obtain issue and risk management feedback and to make procedures, high-level and key improvements milestones, benefits definition 5 Preparing and conducting the first First Change Readiness • Survey using • Oct – Dec 2018 for • Mission for Activity Change Readiness Assessment Assessment (CRA-I) questionnaires the first assessment #5, #6 and #7 can (CRA) in MoF. The result of the (both paper- be done in parallel first CRA will be used as a baseline based and • Duration of the for the next series of CRA. internet) Mission is 2-3 weeks 6 Identification and analysis of Draft Capacity Building Need • Interview • Oct – Dec 2018 for • The remaining capacity building needs for the Analysis • Desk study the first analysis works can be done MoF prior, during and post to remotely (2-3 FMIS implementation weeks) 7 Develop and implement Change • Change Communication • Desk study • Jan – Mar 2019 the • Mission for Specific Communication as part of Strategy and plan • Interviews and first newsletter shall Activity#8 around 2 Change Strategy and Plan discussions be released and weeks 18 No Proposed Major Activities Major Deliverables Methods Timeline and Duration for Remarks Mission • Newsletter and website • observation content on FMIS is • The remaining containing information posted on the MoF works can be done around FMIS is developed website. Also, special remotely (2 weeks) • Special change events related to management-related awareness program events targeting leaders like “Power Lunch� to promote awareness on and “Knowledge FMIS are launched Sharing� are conducted 8 Implementing capacity building, • Selected learning & • In-house • Jan – June 2019 • This might be done targeting key stakeholders directly development programs training by SME not impacted by FMIS specific to support FMIS program necessarily by the development and • Public course Change implementation are • On the job Management Team executed training • Target groups for capacity • Coaching building are identified and ready to attend the capacity building programs 9 Implementing special capacity • Several mandatory • In-house • Jan – June 2019 • A few missions building and coaching programs courses/ trainings for CM training taking around 2-3 for the change management team team are delivered • Coaching weeks each to within the MoF complete • Preparation might take around 1-2 weeks before the missions start 19 Annex 3: Review on the Project Management Structure of Financial Management Information System (FMIS) Implementation of the Lao PDR for Step 1 of PFM Reform Phase II (2018-2020) I. Background In 2017 the Lao People’s Democratic Republic government has approved its Public Finance Development Strategy 2025 and Vision 2030 (PFM Strategy). This strategy is accompanied by Public Finance Management (PFM) Reforms titled “The road towards a strong, transparent, modern and fair Public Finance Management System�. It has been strongly emphasized that the scope of PFM reforms are Government-wide reforms, and not merely the Ministry of Finance of Lao PDR. The Vision consists of three phases with Phase I focusing on legal framework, Phase II focusing on fiscal and PFM core aspects, and Phase III focusing on service delivery improvement (see Error! Reference source not found.). Figure 3: Phases of LPDR PFM Reform Phase II Phase III 2018 - 2025 2026 - 2030 step 2 Phase I Step 1 2021 - 2025 2018 - 2020 Introduce Put in place Promote legal financial Improve efficiency and framework compliance fiscal effectiveness in reform and and fiscal stability service delivery revenue controls for and… and strong PFM expenditur core e… Source: “Vision to 2030 and Public Finance Development Strategy to 2025�, joint work between the Ministry of Finance of LPDR and the World Bank team in Laos Lao PDR already completed 1st Phase and is currently working on Phase II. Phase II consists of two steps. Step 1 focuses on developing fiscal compliance and a strong PFM core system while step 2 concentrates on continuous improvement of fiscal sustainability. To implement Phase II, Lao PDR has defined six strategic programs (see Figure 4). The programs are further elaborated in the implementation plans as shown in Table 2. 20 Figure 4: Prioritized Program step 1 (2018-2020) of Phase II Source: “Vision to 2030 and Public Finance Development Strategy to 2025�, joint work between the Ministry of Finance of LPDR and the World Bank team in Laos Table 2: Implementation Plan for the PFM Reform, step 1 (2018-2020) of Phase II Program 1: Fiscal Policy Improvement 1.1 Improve Revenue Policies 1.2 Develop Expenditure Policies 1.3 Develop Public Debt Management Strategy 1.4 Improve State Reserves Fund 1.5 Develop implementation plan on National Anti-Corruption Strategy for Public Finance sector 1.6 Pilot budget allocation for the Government’s priorities and Sam Sang activities Program 2: Legal Framework Development and Improvement for Public Finance Sector 2.1 Review and revise existing Laws 2.2 Develop new Laws 2.3 Develop and revise Secondary legislation 2.4 Improve Accounting and Independent Audit 21 Program 3: Revenue Management Reform 3.1 Implement Tax development plan 3.2 Develop reform plan for State-Owned Enterprises 3.3 Implement Customs development plan 3.4 Improve State Assets development and management strategy 3.5 Improve Technical revenue at central level 3.6 Improve Technical revenue at local level Program 4: Expenditure Management Reform 4.1 Reform State budget expenditure processes 4.2 Implement Budget expenditure plan 4.3 Report on Budget expenditure plan implementation 4.4 Perform post spending audits 4.5 Improve Technical revenue management 4.6 Implement budget expenditure reform plan at local level 4.7 Develop tracking system on procurement using State budget Program 5: Modernization of Public Finance Sector 5.1 Develop ICT infrastructure 5.2 Improve Government Finance Information System 5.3 Prepare for Financial Management Information System implementation 5.4 Implement TaxRIS system 5.5 Implement ASYCUDA, Smart Tax, Easy Tax systems 5.6 Implement the Automated Clearing House 5.7 Improve Debt Management system 5.8 Develop State assets management system 5.9 Implement E-Office system 5.10 Improve Treasury Single Account 5.11 Improve Payroll system at central level 5.12 Improve Payroll system at local level Program 6: Organizational Structure and Human Resource Development 6.1 Improve Public Finance organizational structure 6.2 Improve Public Finance human resources management 6.3 Improve Organizational Structure and Human Resource Development at central level 6.4 Improve Organizational Structure and Human Resource Development at local level 6.5 Provide change management training to prepare for PFM reform Source: “Vision to 2030 and Public Finance Development Strategy to 2025�, joint work between the Ministry of Finance of LPDR and the World Bank team in Laos 22 II. Proposed Project Management Structure to Support FMIS Implementation for Step 1 of PFM Reform Phase II Project Management is the alignment of the Project with its stakeholder’s needs and objectives. Project management is operated according to project management plans and typically consists of scope management, procurement management, resources management, time management, quality management, change management, risk and issue management, and communications management. One of the key components of project management is the project management structure, which comprises of project units with their responsibilities and authorities, and their compositions. To design the Project Management structure supporting FMIS implementation, key criteria as shown in Table 3Error! Reference source not found. are used as basis. Table 3: Key Criteria for Project Management Structure of FMIS Implementation No Key Criteria Descriptions 1 Enable strategy The structure should enable the strategy by ensuring that all critical work activities are well covered 2 Accountability To ensure the integrity of Project implementation, clear roles and responsibilities; and clear working, control, and decision- making mechanisms (such as project issues resolution and change requests) need to be in place 3 Level of specialization The structure should address level of specialization to ensure necessary knowledge and skills are available (and the required human resources) to support the project. 4 Need for coordination The structure should have necessary coordination units to ensure unity or integration of the various elements that make up the project Lao PDR is aware of the importance of comprehensive project management to successfully implement FMIS during Phase II. Graph 1 below gives an overview of the project management structure for the FMIS implementation. Graph 1: Overview Project Management Structure 23 Lao PDR has established a National Public Finance Management Reform Steering Committee under the Prime Minister Decree number 25/PM dated 24 April 2018. Chaired by the Minister of Finance, the National Steering Committee comprises of 14 members as shown in Table 4. Table 4: Roles and Responsibilities of the National Steering Committee for PFM Reform Member of the National Steering Committee for PFM Responsibilities Reform 1. Minister of Finance Provides overall guidance on each Chair aspect of PFM Reform, monitors and 2. Vice Minister of Finance inspects all implementation stages in Deputy Central and Local level with main 3. Vice Minister of Planning and Investment responsibilities as follows: Member • Provides overall guidance on the 4. Vice Minister of Home Affairs PFM Reform in all stages Member • Considers and approves PFM 5. Vice Minister of Education and Sport Reform Annual work plan Member • Reviews and approves proposals 6. Vice Minister of Health from Central and Local level on the Member PFM Reform implementation 7. Vice Minister of Public Works and Transport • Provides guidance to solve Member problems or avoid potential risks 8. Vice Minister of Agriculture and Forestry during PFM Reform Member implementation 9. Vice Minister of Science and Technology • Provides guidance to monitor, Member inspect, and evaluate the 10. Vice Minister of Post and Telecommunications implementation of PFM Reform Member activities on every six months and 11. Vice Minister of Industry and Commerce annual basis Member 12. Vice Minister of Energy and Mines Member 13. Vice Minister of Information, Culture, and Tourism Member 14. Deputy Governor Bank of Laos Member Source: “Vision to 2030 and Public Finance Development Strategy to 2025�, joint work between the Ministry of Finance of LPDR and the World Bank team in Laos 24 Within the MoF and under the guidance of the National Steering Committee the PFM Reform Program Management Committee has been established. Table 5: Roles and Responsibilities of the PFM Reform Program Management Committee PFM Reform Program Management Committee Responsibilities • Deputy Minister of Finance in charge of supervision of Provide overall guidance on the budget-treasury operations, as the Chair; implementation of the public-finance • Director General of Fiscal Policy and Law Department management reform periodically as the Deputy Chair; • Summarize the tasks of public- • Director General of Organization and Personal finance management system Department as Member; reform annually • Director General of Tax Department as Member; • Provide close guidance to the • Director General of Budget Department as Member; working groups • Director General of National Treasury as Member as • Act as Supervisory Committee Member; during the preparation/ • Director of Institute of Financial Information implementation of FMIS in Development as member; collaboration with the World Bank; • Director of Economics-Finance Institute as member • Support, monitor and evaluate the implementation of public-finance management reform • Consult internally to assign responsibilities to concerned parties • Appoint working groups • Appoint the Program Implementation Unit (PIU) • Carry out other tasks as assigned by the Steering Committee. • Report to the Steering Committee for consideration and approval The PFM Reform Project Management Committee is supported by the Public Finance Management Reform Secretariat (see Graph 2 below.) Graph 2: PFM Program Management Reform Committee and the Public Finance Management Reform Secretariat 25 See Graph 3 below for more detail on the role and responsibility of the Public Finance Management Reform Secretariat. Graph 3: Roles and Responsibility of the Public Finance Management Reform Secretariat A detailed description of the whole Project Management structure is provided in Table 6. 26 Table 6: Detailed description of FMIS Project Management Structure No Unit Main Responsibilities Team Composition 1. National Steering See Table 4 See Table 4 Committee for PFM Reform 2. PFM Reform Program See Table 5 See Table 5 Management Committee (reporting to National Steering Committee for PFM Reform) 3. Public Finance 1. Perform secretariat activities for all six reform programs • Director General of Fiscal Policy and Management Reform 2. Manage procurement processes of all six reform programs Law Department as the Chair Secretariat (reporting to 3. Manage legal aspect with external parties PFM Reform Program 4. Manage financial aspect of all six reform programs Management Committee) 5. Monitor and evaluate external parties’ performance (including individuals and firms involved for all six reform programs) 6. Coordinate with the Committee on the Implementation of Public- Finance Management Reform periodically to monitor and evaluate the progress of Public-Finance Management Reform tasks 7. Coordinate with donors to provide technical and financial support for the implementation of PFM periodically; 8. Supervise the program implementation by the PIU 27 No Unit Main Responsibilities Team Composition 4. Project Management Directs and manages FMIS Project: • Department Director level as Implementation Unit (PIU) 1. Responsible to manage the PFM core program and develop Project Director/Deputy Director of PIU Charter and comprehensive project plan via joint planning with the • Project coordinator (incl. M&E) Project Teams • Functional experts (treasury, budget, 2. Ensure project is delivered within budget, on schedule and within ICT, change management) scope • Financial management specialists, 3. Coordinate and manages the teams’ performance, and effective procurement specialists completion of tasks, ensures integration of all project works • Administration staff 4. Secure acceptance and approval of deliverables from the National Steering Committee for PFM Reform and the PFM Reform Management Committee, and relevant key stakeholders 5. Responsible for communication of project progress 6. Responsible for risk management, and escalation of issues that cannot be resolved in the team 7. Responsible for managing requests and documentation 8. Administer procurement processes of FMIS 9. Administer legal aspect with external parties 10. Administer financial aspect of FMIS project 11. Liaise with Public Finance Management Reform Secretariat 5. Treasury Business Processes 1. Provide technical input on treasury business processes from • Treasury specialists from National Team (reporting to FMIS assessment, design, test, construction, and implementation Treasury Project Director) 2. Collaborate with other teams within FMIS project management to • The team will also be assisted by ensure integration of all project activities and uphold strong external experts or firm specializing in teamwork PFM and FMIS 3. Involved in the project management processes of the FMIS project (planning, monitoring and evaluation, risk and issues management, change request, and stakeholder communication) 6. Budgeting Business 1. Provide technical input on budgeting business processes from • Budgeting specialists from Budget Processes Team (reporting assessment, design, test, construction, and implementation department to FMIS Project Director) 2. Collaborate with other teams within FMIS project management to • The team will also be assisted by ensure integration of all project activities and uphold strong external experts or firm specializing in teamwork PFM and FMIS 28 No Unit Main Responsibilities Team Composition 3. Involved in the project management processes of the FMIS project (planning, monitoring and evaluation, risk and issues management, change request, and stakeholder communication) 7. ICT Team (reporting to FMIS 1. Provide technical input on ICT related to FMIS issues (Software, • ICT specialists from IFID Project Director) Hardware, and IT Infrastructure) from assessment, design, test, • The team will also be assisted by construction, and implementation external experts or firm specializing in 2. Collaborate with other teams within FMIS project management to FMIS ICT ensure integration of all project activities and uphold strong teamwork 3. Involved in the project management processes of the FMIS project (planning, monitoring and evaluation, risk and issues management, change request, and stakeholder communication) 8. Change Management Team 1. Provide technical input on change management related to FMIS • Organizational and human resources (reporting to FMIS Project (training, change communications, organization, and human management specialists from Director) resources management) from assessment, design, test, Personnel Department, and Economic construction, and implementation and Finance Institution and Finance 2. Collaborate with other teams within FMIS project management to Colleges ensure integration of all project activities and uphold strong • The team will also be assisted by teamwork external experts or firm specializing in 3. Involved in the project management processes of the FMIS project FMIS change management (planning, monitoring and evaluation, risk and issues management, implementation change request, and stakeholder communication) 29